1.Katlin Markets is debating between a levered and an unlevered capital structure. The all-equity capital structure would...
Question:
1.Katlin Markets is debating between a levered and an unlevered capital structure. The all-equity capital structure would consist of 90,000 shares of stock. The debt and equity option would consist of 70,000 shares of stock plus $400,000 of debt with an interest rate of 6.25 percent. What is the break-even level of earnings before interest and taxes between these two options? Ignore taxes.
2.Florida Groves has a $250,000 face value bond issue outstanding that is selling at 108 percent of face value. The firm also has 5,000 shares of preferred stock valued at $38 a share and 45,000 shares of common stock valued at $14 a share. What weight should be assigned to the preferred stock when computing the firm's weighted average cost of capital?
Intermediate Financial Management
ISBN: 9780357516669
14th Edition
Authors: Eugene F Brigham, Phillip R Daves